How to Increase Your Price and Make it Stick: A Checklist for Success

How to Increase Your Price and Make it Stick: A Checklist for Success

Price increases are an essential aspect of running a successful business. However, implementing them can be challenging, and if done poorly, they can have catastrophic consequences. Take the example of Microsoft, which made critical errors in executing a price increase, leading to its failure and putting future price increases at risk. Similarly, Netflix's failed attempt at increasing subscription prices in 2011 resulted in a 70% drop in its share price in just one day. It took years for Netflix to recover and regain the confidence to increase prices again.

To ensure a successful price increase, it is crucial to approach it strategically and consider the following checklist:

1. Keep your price increase level in check:
   When implementing medium- to high-risk price increases, it's essential to limit the additional amount any given customer will have to pay and phase the increase out over time. Customers do not appreciate being told what to do, so providing options rather than forcing them to accept the new prices is key. Gradually migrating customers onto new plans can help keep them happier and optimize revenue in the long term.

Actionable Advice: Give customers a grace period and allow them time to plan their budgets accordingly. In B2B sales, stage larger price increases over time, gradually increasing by around 10% per year for 2-3 years.

2. Limit access to new features and functionality:
   To incentivize customers to migrate to new plans, it is essential to restrict "legacy customer" access to significant new features that add value to their experience. This creates a sense of exclusivity and encourages customers to consider upgrading to the new plans.

Actionable Advice: Ensure that customers who want to migrate receive a slight break from the higher prices charged to new customers. Offer them a comparable price point in the new plan with usage limits if applicable.

3. Enable customer success and sales through effective communication:
   When communicating price increases, it's crucial to focus on value rather than just the price. Highlighting new features, improvements, and real-life examples of value can help customers understand the benefits they will gain from the higher prices. Personalizing the communication and showcasing how the customer's specific value has improved over time can also be impactful.

Actionable Advice: Lead with new features and product improvements. Include examples of real-life value and highlight return on investment (ROI) through case studies, testimonials, and reports. Personalize the communication to show the customer's individual benefits.

Incorporating the concept of the 85% Rule for Learning into pricing strategies can also provide valuable insights. This rule suggests that optimal learning occurs when we succeed around 85% of the time. Similar findings have been observed in machine learning algorithms and successful classrooms, indicating a sweet spot for difficulty.

Applying this concept to pricing strategies, it is essential to fine-tune the level of support and difficulty based on the success rate experienced. Tasks that are slightly beyond what customers can do independently but can accomplish with assistance maximize their learning and engagement.

In conclusion, implementing price increases requires careful planning and execution to ensure success. By keeping price increases in check, limiting access to new features, incentivizing customers to migrate, and effectively communicating value, businesses can navigate price increases without alienating customers. Additionally, incorporating insights from the 85% Rule for Learning can provide a framework for finding the optimal level of difficulty and support in pricing strategies.

Actionable Advice:

1. Fine-tune the level of support and difficulty based on the success rate experienced.
2. Design tasks that are slightly beyond what customers can do independently but can accomplish with assistance.
3. Communicate the value and benefits of price increases effectively, focusing on new features, improvements, and personalized examples of value.

By following these actionable advice and incorporating strategic approaches, businesses can increase prices successfully and maintain the health and growth of their scale-ups.